Most Americans know that Social Security is headed toward
bankruptcy. Nothing makes the point better than the poll taken a couple
of years ago in which young people said they had a better chance of spotting
a UFO than receiving Social Security benefits.

But many may not know why the system is threatened.
In order to develop a solution-one that meets my goal of saving Social
Security for todayís retirees and those near retirement, the baby boomers
and their children-we need to understand the serious difficulties facing
Social Security.

Defining the problem

Believe it or not, in 1945 there were about 42 workers
for each person receiving Social Security benefits. By 1960, that ratio
had shrunk to about 5 to 1. Today, itís 3.4 to one and by 2030, there will
be just 2.1 workers for each beneficiary.

At the same time, Americans are living longer. Thatís
good news. But it means retirees will receive benefits for a longer period.
Americans are also having fewer children, which means relatively fewer
workers paying Social Security payroll taxes. It is those taxes that finance
current benefits.

Aside from these demographic trends, first-time Social
Security benefits are growing far faster than inflation. These benefits
now rise with overall wage growth, and wages are rising faster than prices.
The result: over the next 75 years, benefits will increase more than 20
times, while prices will go up at half that rate. A retiree in 2060, for
example, has been promised annual benefits starting at over $140,000.

The result is a system that would require people in the
future to work longer hours and pay more in taxes to support retirees.
By 2034, payroll taxes would need to be increased by 50% to pay promised
benefits or benefits would need to be slashed. Between now and 2070, benefits
will exceed payroll taxes by a cumulative $120 trillion.

Is it any wonder young people donít expect to receive
their Social Security?

We must do better, and we can. Every generation of Americans
has left a legacy of prosperity for its children. We cannot let our legacy
be a Social Security system drowning in a sea of red ink.

The Kasich Social Security solution

My plan does not affect current retirees and those nearing
retirement-benefits for those now 55 or older would be untouched. Neither
would it increase the retirement age above current law, increase payroll
taxes or reduce annual cost-of-living adjustments (COLAs), now or in the
future.

We save Social Security by making two fundamental changes
to the system for those now under 55. First, this plan changes the way
first-time benefits will be calculated. These benefits now rise with overall
wage growth. Under my plan, growth in initial benefits would be linked
to the consumer price index. Initial benefits would still rise over time,
only at a slower rate. Instead of rising 20 times over the next 75 years,
they will increase by a factor of 10.

Switching from wage indexing to price indexing will
eliminate the unfunded liability of the Social Security system and allow
us to avoid increasing the payroll tax for young workers. At the same time,
future workers could count on receiving their benefits.

Second, workers currently contribute 6.2% of their wages
to Social Security. My proposal allows workers under 55 the option of establishing
their own personal savings accounts. Contributions into these accounts
would range from 3.5% of wages for low income workers to 1% for those at
high income levels. Workers who choose to contribute to these accounts
would have a variety of investment options and could withdraw proceeds
upon retirement. But as they will be paying less into Social Security,
their Social Security benefit will be slightly reduced. The basic Social
Security benefit will be reduced by 25 cents on the dollar for each dollar
they receive from their personal savings account.

Nonetheless, the private investment account option
should offer most recipients the opportunity for greater returns than Social
Security alone could generate.

Yes, we are asking some in the baby boom generation to
insure the solvency of Social Security by making a sacrifice in terms of
accepting a slightly lower initial benefit. An average 45-year-old male,
for example, would receive about 1.7% less under my plan, but look what
happens in return. First, he is assured of receiving benefits because the
solvency of Social Security is assured. More important, his children will
receive far more in benefits. Under my plan a 25-year-old male who takes
advantage of the personal savings account option should receive 19%
more in benefits than promised under the existing system, based on
historical averages for conservative investments.

Todayís retirees and those nearing retirement will receive
their benefits just as they expected. Younger workers can not only count
on receiving benefits, they will not have to worry about the prospect of
working longer hours and paying increased payroll taxes that would otherwise
be needed to keep the current system afloat. If they take advantage of
the personal savings account option, theyíll have more control over their
own retirement resources and the opportunity for greater overall benefits
than under our current Social Security system-even if it could pay all
their promised benefits.

Finally, and most important, my plan is honest and realistic.
The problems facing Social Security have built up for so long and become
so mammoth that everyone must realize they cannot just be wished away.
This plan makes clear the costs and benefits, and it avoids false promises.

If we are truly concerned about saving Social Security,
there is no better plan than this one and no better time to start than
today. If we face the challenge now, we can provide for our retirement
security without sacrificing our childrenís and grandchildrenís standard
of living.